The first step will raise the salary level to determine overtime eligibility for most workers from the federal minimum of $455 per week, $23,660 annually, to $610 per week, $31,720 annually, on Jan. 1, 2020. The threshold will increase to $39,832 on Jan. 1, 2021, followed by $47,892 in 2022, extending overtime eligibility to 370,000 workers and up to 460,000 in four years.
Starting in 2022, the salary threshold will update automatically every three years so workers are not left behind. Additionally, the duties for executive, administration and professional workers will be clarified to make it easier for employers to know if a worker qualifies for overtime.
The genesis of this overhaul was the U.S. Department of Labor’s missed opportunity to update overtime rules in 2016. That is, the DOL attempted to raise the overtime salary level from its current level of $23,660/year to $47,476/year. However, a federal judge put the kibosh on that.
Likewise, businesses tried to put a pin in Governor Tom Wolf’s balloon. Yes, while the DOL finally settled on a far more modest overtime proposal, the Governor’s office announced last week that Pennsylvania is moving forward with a more aggressive salary-level test:
The United States Department of Labor (U.S. DOL) issued a final rulemaking in September raising the federal overtime salary threshold to $35,568, which, on January 1, 2020, will make 61,000 Pennsylvanians newly eligible for overtime. The Wolf Administration does not believe the new U.S. DOL rule truly reflects what Pennsylvanians are being paid. L&I set the minimum salary threshold at $45,500, to be phased in over two years beginning in 2021. By 2022, an additional 82,000 workers in Pennsylvania will be eligible for overtime.
This increase will be phased in over three steps: $684 per week, $35,568 annually (per federal rule), on January 1, 2020; $780 per week, $40,560 annually in 2021; and $875 per week, $45,500 annually in 2022, extending overtime eligibility to 143,000 workers in three years.
Also, the final PA rule allows incentive pay to count toward ten percent of the salary threshold on an annual basis.
In plain speak, Eric, what does this all mean?
Pennsylvania state law and federal law each require that covered employers pay minimum wage ($7.25) and overtime (time and a half on more than 40 hours worked in a workweek) to employees unless they are exempt from these requirements. The exemptions are few and narrowly construed. Most of them require, among other things, that an employee is paid a certain amount in salary. For Executive, Administrative and Professional workers to be exempt, they needed to be paid a salary of $23,660 annually (or $455/week).
But, on January 1, 2020, the overtime-exemption salary level jumps from $455/week to $684/week. That sounds like a significant bump, but if you factor in that most folks who earn a $35K salary are not exempt from the overtime rules anyway (because they do not check the other overtime-exemption boxes), it’s not so much of a big deal.
Except, in PA, that number will continue to increase for two more years ($780/week in 2021 and $875/week in 2022), supposedly affecting 143,000 PA workers.
Is this a done deal?
Yeah, pretty much unless legislation is passed changing the rule or a court enjoins it. Don’t hold your breath on either one.
How should local employers prepare?
Pretty much the same way you did a few years ago when the DOL was going to move the salary level up to $47,476.
That is, to avoid paying overtime, you can raise the salary of an otherwise exempt employee to somewhere at or above each year’s salary-level threshold. Or, you can keep the employee’s salary static below the salary-level (or convert them to hourly) and pay overtime when that employee works more than 40 hours in a workweek. Just make sure that you have some protocols in place to limit overtime opportunities (require permissions, train managers, etc.)
Also, it seems obvious to me, but you should track the hours of all non-exempt employees.
Plus, now would be a good time to consider a broader wage and hour audit to ensure that you have not inadvertently misclassified any of your exempt employees.